Prima facie jurisdictional decision by the FAI Board allowing a single arbitration initiated against two separate parties on the basis of three different arbitration agreements to proceed

Article 14 is one of the key provisions of the FAI Rules. It sets out the prima facie jurisdictional test that needs to be fulfilled in order for the FAI Board to assume jurisdiction and to administer a case under the Rules. The provision is divided into two main subsections.

Article 14.1 governs situations where claims are brought in a single arbitration under one arbitration agreement only. It provides that where any party against which a claim has been made fails to submit a response to any claim made against it, the Board shall allow the arbitration to proceed if it is prima facie satisfied that an arbitration agreement under the Rules that binds the parties may exist. The same applies if the respondent raises any plea against the existence, validity or applicability of the arbitration agreement based on which the claimant has filed its Request for Arbitration.

Article 14.2, in turn, governs situations where claims are brought in a single arbitration on the basis of two or more arbitration agreements. Article 14.2 imposes certain additional requirements on the jurisdiction of FAI. According to said provision, the Board must be prima facie satisfied that the arbitration agreements under which the claims are made “do not contain contradictory provisions” and that “all parties to the arbitration may have agreed that those claims can be determined together in a single arbitration”.

As can be noted, Article 14 follows closely the wording of Article 6(4) of the ICC Rules, the only difference being that according to the FAI Rules the arbitration agreements cannot be contradictory, whereas Article 6(4)(ii) ICC Rules provides that the arbitration agreements “may be compatible”. The FAI Rules Revision Task Force intended that the Board may draw guidance from Article 6(4) ICC Rules when applying Article 14 of the FAI Rules. Additionally, because of the substantive similarity of the two provisions, interpretations of Article 14 by the FAI Board may be of interest to the users of the ICC Rules as well.

Since the entry into force of the FAI Rules on 1 June 2013, there have been in total 16 cases (as per November 2014) where the Board was called upon to determine its prima facie jurisdiction under Article 14 either because of a respondent’s jurisdictional objection or failure to submit any Answer to the Request for Arbitration. The following is an anonymous abstract of one prima facie jurisdictional decision issued by the Board in 2014. The circumstances of that case were as follows.

A and B had established a joint venture C. On the same date, A and B had entered into a shareholders’ agreement regarding the ownership and governance of C. Simultaneously, A and C had entered into a business purchase agreement in respect of the sale and transfer by A, and acquisition by C, of certain assets owned by A. Also B was a party to the business purchase agreement, having issued a guarantee for the payment of 50 per cent of C’s monetary obligations towards A under the said agreement. The shareholders’ agreement contained an FAI arbitration clause providing that any disputes shall be referred to a three-member arbitral tribunal in proceedings seated in Helsinki and conducted in the English language. The arbitration clause contained in the business purchase agreement was effectively similar except that it left the number of arbitrators open. The guarantee issued by B explicitly referred to the arbitration clause set forth in the business purchase agreement.

A started an arbitration against B and C by filing a single Request for Arbitration where it presented separate but related claims against both respondents. A’s claims against C were based on an alleged breach of the business purchase agreement, whereas the claims against B were based on an alleged breach of the shareholders’ agreement and B’s obligations as the guarantor under the business purchase agreement. The total amount of the claims exceeded EUR 10 million. A requested that all the claims be dealt with in a single proceeding before a three-person tribunal on the following grounds: (i) as A, B and C were all parties to both the shareholders’ agreement and the business purchase agreement, they were bound by the arbitration clauses contained in both agreements; (ii) both arbitration clauses were effectively similar, providing for arbitration under the FAI Rules; (iii) reasons of procedural efficiency spoke in favour of determining all the claims raised under the shareholders’ agreement and the business purchase agreement in one single arbitration; (iv) the shareholders’ agreement expressly provided for three arbitrators, and although the business purchase agreement was silent on the number of arbitrators, it was appropriate to appoint an arbitral tribunal composed of three arbitrators (instead of a sole arbitrator) to resolve the dispute arising out of both agreements considering the high monetary interest at stake.

As B and C failed to submit an Answer to A’s Request for Arbitration, the Board was required to make a jurisdictional decision pursuant to Article 14.2. The Board concluded that it was prima facie satisfied that the arbitration clauses invoked by A did not contain contradictory provisions and that all the parties to the arbitration might have agreed that A’s claims can be determined together in a single arbitration. The Board therefore allowed the arbitration to proceed against both B and C in accordance with Article 14.2. Furthermore, the Board ruled that also the claims raised under the business purchase agreement should be referred to an arbitral tribunal composed of three arbitrators taking into account the amount in dispute, the complexity of the case, and A’s proposal on the number of arbitrators which B and C had not objected to.

Shortly after the FAI Board’s decision, the parties settled the dispute amicably and the claimant withdrew its Request for Arbitration. Consequently, there was no need to constitute any arbitral tribunal. Assuming, however, that the parties had not settled the case and that the Board had appointed an arbitral tribunal and referred the case file to it, it would then have fallen upon the arbitral tribunal to determine its own jurisdiction pursuant to Articles 14.3 and 32.1 of the FAI Rules. According to those provisions, the Board’s prima facie jurisdictional decision to allow the arbitration to proceed under Article 14 is not binding on the arbitrators; instead, the arbitral tribunal shall independently assess and rule on any objections against its authority to adjudicate the dispute, including any jurisdictional pleas regarding the existence, validity or applicability of the arbitration agreement.

Reported by Mika Savola
Chair, FAI Board

Tallennettu kategorioihin FAI cases, Välimiesmenettely | Avainsanoina